Aluminum Processors in Henan Lose Advantages

Aluminum processors in China reported an increase in orders in March. However, orders at processors in Henan are poor this year, which is different from the past.  

Production costs at aluminum processing enterprises in Henan are higher compared with east and south China. First, equipment at processors in Henan came into use later than that in east and south China, so equipment depreciation expense at Henan-based enterprises is higher. Second, although prices of electricity for industrial use as well as prices of natural gas and coal are higher in east and south China than in Henan, enterprises in Henan consume more energy, so overall production costs are higher in Henan. Third, processors in east and south China are able to produce high-precision aluminum semis with advanced equipment, whereas those in Henan can only medium and low-end aluminum semis with the same equipment. As such, producers in Henan are producing products with low added value while failing to maximize the utilization rate of equipment.

Rising labor costs also pushed up production costs at enterprises in Henan. Many workers from inland areas choose to work in their local cities due to narrowing wage gap between inland and coastal areas.

Aluminum ingot prices in Henan are the same as or even higher than Changjiang spot prices. Prices in Wuxi, in contrast, are RMB 50/mt lower than Changjiang spot prices. In this context, processors in Henan lost advantages in raw material prices.

Freight charges by motorway began to rise with the price hike in gasoline. End users of aluminum semis are clustered in east and south China, giving advantages to aluminum processors in these regions. Henan is in the middle of China, and rising freight charges pushed production costs at local processors up further.